BRUSSELS, March 18 (Reuters) - Mocked by Moscow, the
European Union needs to impose far tougher sanctions over Crimea
to make President Vladimir Putin sit up and pay attention, but
its ability to agree them is limited - and consensus may not be
achievable at all.

Russia's response to the first phase of EU sanctions -
travel bans and asset freezes on 13 Russian and eight Crimeans -
has been dismissive. Deputy PM Rogozin took to Twitter to
ridicule the EU and the United States, calling their steps weak
and meaningless.

Some EU foreign ministers quietly agree and are frustrated.
They wanted harder-hitting sanctions, but EU restrictions have
to be agreed unanimously, which means the measures are only as
strong as the country with the deepest reservations will allow.

Austria is among the doubters. "Sanctions don't solve
problems," said Chancellor Werner Faymann. "The solution can
only be getting to negotiations."

EU leaders meet in Brussels on Thursday, when they will
discuss widening the net, adding names to the 21 already on the
travel-ban and asset-freeze list, possibly including oligarchs
or people close to Russian President Vladimir Putin.

Resistance to escalating sanctions, which aim to stall
Putin's drive to bring the Ukrainian region into Russia, is
strong.

At a small lunch held a few days before the first phase of
sanctions was imposed on Monday, one EU ambassador cautioned
against moving too quickly or aggressively on Moscow.

"We don't want to end up on an escalator where we don't know
where it's going," he said, arguing that once you take the first
step on sanctions, there are immediate calls for more
substantial measures to increase the pressure.

"What do you do when sanctions run out?" he asked, leaving
hanging the inference that the EU does not want - and could not
afford - a more physical confrontation with Russia.

In the end, the ambassador's country joined the rest in
unanimously agreeing the measures which were less tough than
sanctions imposed by the United States.

"We have done what we said we could do, but, yes, the U.S.
is from Mars, we are from Venus," said Polish Foreign Minister
Radoslaw Sikorski, who wanted at least four more names on the EU
list but was rebuffed by other member states.

"I would suggest that we are not overly enthusiastic when it
comes to introducing sanctions, because we will pay for it."

TIED UP IN KNOTS

While it may be possible to secure agreement among all 28
member states this week for an expansion of the list - diplomats
have told Reuters there are up to 100 names under consideration
- it is unlikely to deter Russia very much.

Instead, the critical question is whether the EU can agree
on the step that would come after, the escalation of sanctions
to include finance and trade, measures that would directly harm
Russian exports, businesses and banks - and the EU as a result.

The third stage - which EU leaders agreed on March 6 they
would move to if Russia took further steps to destabilise
Ukraine - would be akin to sanctions the EU and United States
have imposed on Iran over its nuclear programme. It really would
carry serious consequences for Moscow.

The problem is very few member states want to contemplate
it, so serious are the possible consequences, both from the
impact on bilateral business and likely retaliation by Moscow.

From Finland, with 1,300 km (800 miles) of shared border
with Russia and a history of war enmity, to Cyprus, which has
close banking, property and investment ties with Russia, there
are reasons for nearly every EU country to have concerns.

Germany is among those most determined to stand up to
Moscow, but it takes 40 percent of its gas from Russia. Britain
wants to be tough, but Russian businesses and oligarchs use
London as their financial centre. France has nearly $50 billion
of exposure to Russia.

Spain, Portugal, Italy, Romania, Bulgaria, Greece and the
Baltics have similar or related reasons to be reluctant, along
with Austria.

"We will reach the stage where those EU countries who have
interests and investments in Russia will be heavily penalised,"
said Nigel Kushner, chief executive of W Legal, a London law
firm, who sees little chance of escalation working.

That leaves the EU in a quandary. It can add more names to
existing sanctions this week and just about maintain unity, even
if it does nothing to bring Moscow into line. But going any
further - the step that's required to hurt Moscow - may prove
too difficult and divisive, and Russia knows it.

Instead, the EU may be left looking for diplomatic ways to
admonish Moscow, while quietly having to accept that Crimea is
in Russia's hands and the territorial integrity of Ukraine - the
catchphrase of the last month - has been shattered.
(Additional reporting by Angelika Gruber in Vienna and Steve
Stecklow in London; editing by David Stamp)